Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A 2-1 buydown lowers the payment for exactly two years on a schedule set in advance, then the payment steps up to the full permanent note rate regardless of what happens to the borrower's finances in the meantime. The temporary relief is real, but it's a subsidy with a fixed expiration, not a permanently lower rate.
Before you rely on it
What to check
Confirm the household budget can comfortably support the full permanent-rate payment starting in year three, not just the reduced payments during the buydown period.
The common error
Where people go wrong with 2-1 buydown calculator
Qualifying for and budgeting around the reduced early payments as if they were the loan's real cost. The permanent note rate applies from year three onward regardless of the temporary subsidy that came before it.
Sensitivity evidence
How note rate changes the estimated 2-1 buydown cost
| Note rate | Estimated 2-1 buydown cost | First-year monthly savings |
|---|---|---|
| 4.5% | $8,122 | $446 |
| 5.5% | $8,633 | $475 |
| 6.5%worked example | $9,104 | $502 |
| 7.5% | $9,531 | $526 |
| 8.5% | $9,914 | $547 |
Every input, tested
Which input moves the estimated 2-1 buydown cost most
| Input | Tested from | To | Estimated 2-1 buydown cost at each end | Swing |
|---|---|---|---|---|
| Loan amount | $360,000 | $440,000 | $8,193 to $10,014 | $1,821 (20%) |
| Loan term | 22.0 years | 38.0 years | $8,383 to $9,728 | $1,345 (15%) |
| Note rate | 5.5% | 7.5% | $8,633 to $9,531 | $899 (9.9%) |
Two variables at once
Estimated 2-1 buydown cost by note rate and loan amount
| Note rate \ Loan amount | $320,000 | $400,000 | $480,000 |
|---|---|---|---|
| 4.5% | $6,497 | $8,122 | $9,746 |
| 5.5% | $6,906 | $8,633 | $10,359 |
| 6.5% | $7,283 | $9,104 | $10,925 |
| 7.5% | $7,625 | $9,531 | $11,438 |
| 8.5% | $7,931 | $9,914 | $11,897 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Loan amount | $400,000 |
| Note rate | 6.5% |
| Loan term | 30.0 years |
| Estimated 2-1 buydown cost | $9,104 |
| First-year monthly savings | $502 |
Where the inputs come from
The loan amount, note rate and term come from the loan estimate. In a 2-1 buydown the rate is two points lower in year one and one point lower in year two, then the note rate applies for the rest of the term. The cost of the subsidy is typically paid by the seller or builder and held in escrow, so ask who pays and whether the note rate is higher than a plain offer would be.
When the result stops applying
You must qualify at the full note rate in most programs, so a buydown does not raise how much you can borrow. If you sell or refinance early, unused escrow funds may be returned to the payer, not to you. The concession also counts toward the seller-contribution limits of your loan type.
What to compare it with
Ask who is funding the buydown and whether the same money could have lowered the price or paid closing costs instead. A temporary buydown helps most when you expect income to rise or rates to fall so you can refinance. Compare the payment after year two with your budget, since that is the payment you will carry for the rest of the loan. The mortgage points calculator prices a permanent rate reduction, which is the alternative use of the same money.
People also ask
Frequently asked questions
Who pays for a 2-1 buydown?
Usually the seller or builder, sometimes the buyer or lender. The funds are held in escrow to cover the reduced payments.
What happens after year two?
From the third year you pay the full note rate for the rest of the term, so the payment rises to its permanent level. Plan your budget around that payment, not the reduced ones in the first two years.
Is a buydown better than a lower price?
It depends. A price cut lowers the loan for the whole term, while a buydown helps the first two years only.